Impressive Job Growth in May
The jobs Wall Street most urgently needs to fill right now are in taxidermy: people to clean up and stuff all the dead doves left in the wake of the May employment report.
U.S. employers added 272,000 workers to their payrolls in May, far more than the 180,000 or so forecast by economists. Private payrolls grew by 229,000, divided between an impressive 203,000 in the services sectors and a decent 25,000 in the goods-producing sectors.
Widespread Job Growth in Services Sectors
The services sectors saw widespread job growth. Although job growth in several sectors was not particularly impressive, there were few signs of weakness. Wholesale trade added 3,100 jobs, a bit higher than the average monthly gain in the pre-pandemic period. Total employment in wholesale trade now stands at around 6.2 million, well above the 5.9 million pre-pandemic peak. Retail trade added 12,600 jobs, which is below the pace set in the first four months of the year but above the pace in the second half of last year. Retail jobs are also now higher than they were pre-pandemic.
Transportation and warehousing added a respectable 10,600 jobs, and utilities employment grew for the first time since February. These are signs that businesses catering to the U.S. consumer remain confident enough to keep growing. Retailers do not keep adding employees if demand is soft, so we expect this signals a rebound in retail sales in May after a softer April.
Leisure and hospitality jobs grew by 42,000. While that’s below some of the very high levels seen in 2021 and 2022, it is high by longer-term historical standards. This growth is all the more impressive because this sector has now surpassed the pre-pandemic level and is no longer playing catch-up. This too is a sign of robust consumer demand.
(Photo by k8townsend/Unsplash)
Not surprisingly, information jobs were flat after falling in April and barely moving in March. Keep in mind that this is a very small part of the labor market—just 3.1 million workers—that receives a lot more attention because it is seen as a driver of economic growth and innovation. It had a tremendous burst of payroll growth in the aftermath of the pandemic and has since retreated to levels only slightly higher than the pre-pandemic period.
Financial activities added 10,000 jobs, and professional and business services added 33,000. The growth in these services sectors indicates robust demand from households and businesses for services and is a leading indicator of demand going forward. These new employees will spend their income into the economy, contributing to growth.
Goods Side of the Economy
It will no doubt be pointed out by many of our conservative friends that a high share of the jobs came in “government-adjacent” sectors, especially healthcare and social assistance. These two sectors added 83,500 jobs. But even if you subtract these from the private sector growth of 229,000, truly private job growth was still a respectable 145,500.
It’s also important not to make too much of the private sector-public sector divide. While government jobs and government-adjacent jobs may not reflect underlying economic conditions, they do affect them. The income of government workers still fuels consumption—and inflation. So while it is fair to discount these jobs when looking at private sector demand for workers, they shouldn’t be discounted for seeing where growth and inflation are headed in the near term.
Growth continued on the goods side of the economy. Construction added a very impressive 21,000 jobs, indicating that the long-awaited slowdown in construction has not yet arrived. Manufacturing added 8,000 jobs, making it the biggest month for factory jobs since December. This suggests that the S&P Global purchasing managers survey that indicated growth in manufacturing for the month was more on target than the Institute for Supply Management survey.
The Fed Gets the Summer Off
The report erased any chance of a July rate cut. While regular readers of Breitbart Business Digest may be surprised that anyone was still calling for a rate cut in the middle of this summer, there were still several big banks and investment firms that were boldly sticking to their July call, including Citigroup. They’re now all backing away from that view, with Citi pushing its call out to September.
A September rate cut is highly unlikely. Wall Street had been giving it something like a 75 percent chance of happening, but that’s now in danger of slipping below 50 percent. The earliest reasonable expectation for a cut is now December—although we’re increasingly convinced that even if economic conditions warranted a cut, the Fed would hold off to see how the markets and the economy adjust to the November election results.
We have been saying for a few weeks that the softness in the April numbers looked like a “blip” and that the economy appeared to rebound in May. The jobs numbers confirm that view, and we expect that will not be lost on Fed officials when they meet next week.
